James v. Zurich-AM. Ins. Co. of IL

• Decision Date: 09 February 2000
• Docket Number: No. 98-7542,No. 98-7543,Nos. 98-7542 and 98-7543,ZURICH-AMERICAN,98-7543,98-7542,s. 98-7542 and 98-7543
• Citation: 203 F.3d 250
• Parties: (3rd Cir. 2000) LESVILLE JAMES, as assignee of the rights of MERIDIAN ENGINEERING, INC. and COMPANION, INC., d/b/a COMPANION ASSURANCE COMPANY, Appellant inv.INSURANCE COMPANY OF ILLINOIS, Appellant in
• Court: U.S. Court of Appeals — Third Circuit

Page 250

203 F.3d 250 (3rd Cir. 2000)

LESVILLE JAMES, as assignee of the rights of MERIDIAN ENGINEERING, INC. and COMPANION, INC., d/b/a COMPANION ASSURANCE COMPANY, Appellant in No. 98-7543 v. ZURICH-AMERICAN INSURANCE COMPANY OF ILLINOIS, Appellant in No. 98-7542

Nos. 98-7542 and 98-7543

UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT

Argued September 10, 1999

Decided February 9, 2000

APPEAL FROM THE DISTRICT COURT OF THE VIRGIN ISLANDS, DIVISION OF ST. CROIX: CHRISTIANSTED (D.C. Civil Action No. 95-cv-00117)(RLF) District Judge: Honorable Raymond L. Finch Joel H. Holt, Esquire (ARGUED) Law Offices of Joel H. Holt 2132 Company Street, Suite 2 Christiansted, St. Croix U.S. Virgin Islands, 00820, Attorney for Appellant Lesville James as assignee of the rights of Meridian Engineering, Inc. and Companion, Inc. d/b/a Companion Assurance Company.

Ignatius J. Melito, Esquire (ARGUED) S. Dwight Stephens, Esquire Wendy S. Kennedy, Esquire Melito & Adolfsen P.C. 233 Broadway New York, New York 10279, Douglas L. Capdeville, Esquire Law Offices of Douglas L. Capdeville P.O. Box 4191 2107 Company Street, Lot #4 Christiansted, St. Croix U.S. Virgin Islands, 00822, Attorneys for Appellant Zurich-American Insurance Company of Illinois.

BEFORE: ROTH and WEIS, Circuit Judges, and SHADUR,^* District Judge

OPINION OF THE COURT

SHADUR, Senior District Judge:

We are asked to interpret what may at worst be labeled an ambiguous provision of an insurance policy, to determine whether the policy provided coverage for a third party, not the insured itself. Upon review we find that whatever might be said as to the literal meaning of the disputed provision, the practical construction given to its terms by the actual parties to the policy--the insurer and the insured--resolved any arguable ambiguity and excluded coverage for the third party. We therefore reverse the order of the District Court to the contrary.

Background

Zurich-American Insurance Company of Illinois ("Zurich") appeals an adverse decision in an insurance coverage declaratory judgment action instituted against it by Lesville James ("James") as assignee of the rights of Meridian Engineering Inc. ("Meridian") and Companion Assurance Company ("Companion"). This action arose out of a dispute between Zurich and Companion as to their respective responsibilities for damages suffered by James, as determined in a personal injury action that he had filed against Meridian. Although it is uncontested that Meridian had procured its own liability insurance policy from Companion, what is at issue in the present litigation is whether Zurich was a coinsurer.

Companion had earlier claimed (and now James claims) that Meridian was insured under a policy issued by Zurich to Hess Oil Virgin Islands Corp. ("Hess Oil" or "HOVIC")¹ covering a construction project ("FCCU Project") at the Hess Oil refinery in St. Croix, Virgin Islands. That Zurich policy became effective on December 1, 1990 and continued for the duration of the project.² As part of the FCCU Project, Hess Oil contracted with Meridian to pave some roads. While working under Meridian's supervision on August 31, 1993, James suffered an injury that he asserted resulted in a below-the-knee amputation of his right leg. On June 24, 1994 James filed his personal injury action against Meridian.³

Upon learning of James' lawsuit, "Meridian looked for insurance policies that might cover its liability for James' claim. Meridian identified Companion and Zurich as potential co-insurers. . . ." (James v. Zurich-American Ins. Co. of Ill., No. 95-117F, slip op. at 4 (D.V.I. Sept. 9, 1998)).⁴ Defense of the case was tendered to Zurich as well as Companion, but Zurich denied coverage on the predicate that Meridian was not insured under its policy. Companion proceeded to defend the action, but it also tendered defense of the claim to Zurich after initial discovery. Zurich again denied coverage, and Companion then brought this declaratory judgment action.

James, Companion and Meridian later began settlement discussions. Zurich was afforded the opportunity to participate in those talks, but it declined. Those discussions led to an agreement under which Meridian stipulated to a $1 million judgment and assigned whatever rights it had against Zurich and Companion to James in exchange for James' promise not to execute the judgment against Meridian. For its part, Companion agreed to pay James $125,000 as a discharge payment for its share of the stipulated judgment, and it too assigned its rights against Zurich to James. Because Companion's policy limit was $1 million and Zurich's was $2 million, James stipulated that Zurich's maximum liability would be two-thirds of the $1 million stipulated judgment.⁵ James was then substituted as the sole plaintiff in the federal action. Hence the nature of the relief sought in the declaratory judgment action before the District Court was a declaration that Zurich was a coinsurer, so that James could collect $666,666 from it under the settlement agreement.

On the litigants' cross-motions for summary judgment, the District Court determined (in its June 23, 1998 slip opinion, the "Summary Judgment Opinion"⁶) that the contract provision identifying the entities covered under the policy ("the Named Insured provision") was ambiguous, so that the need for extrinsic evidence precluded a decision as a matter of law. Here is the Named Insured provision (emphasis added):

Hess Oil Virgin Islands Corps. (HOVIC), Amerada Hess Corporation and its directly and indirectly owned subsidiary companies and/or interests in associated and/or affiliated companies and/or organizations and any other companies or entities over which Amerada Hess Corporation is responsible to insure and/or required to insure under contract or otherwise in respect of their involvement in the HOVIC FCCU Project, and Litwin Engineers and Contractors, Inc. and/or Contractors, Subcontractors and Employees and/or Consulting Engineers; and suppliers as required.

At the ensuing bench trial Zurich stressed that the "as required" language at the end of the provision refers back to the entities that Hess Oil is "responsible to insure" or is "required to insure under contract." In contrast, James argued that the provision provided coverage for all contractors and subcontractors performing work on the FCCU Project because the "as required" phrase relates only to "suppliers."

Both sides produced extrinsic evidence to support their respective interpretations of the provision. Zurich and Hess Oil representatives testified⁷ that the intent of the Named Insured provision was to provide coverage only for "FCCU contractors," a term referring to contractors and subcontractors that Hess Oil had contractually promised to insure. As Hess Oil's Property and Casualty Claims Administrator John Talarico ("Talarico") explained, an "FCCU contractor is a term of art we use to describe those whom HOVIC had agreed to provide insurance coverage as embodied by the Zurich Wrap Up policy."

Witnesses from Zurich, Hess Oil and Amerada Hess uniformly stated that the Named Insured provision was intended to provide coverage solely for FCCU contractors. As Talarico explained in a letter to Zurich:

We purchased the Wrap Up liability insurance first, then the contract provisions were drafted to reflect the coverage terms and limits. The intent is to provide [general liability] and auto coverage for all FCCU contractors in all instances.

Among those bolstering that view were Andrew Wade ("Wade"), the Zurich underwriter who negotiated the policy, James Foley and Ed Weinman, the present and former Hess Oil controllers who dealt extensively with Hess Oil's various contractors, and Kevin Beebe, Amerada Hess' Manager of Corporate Insurance.⁸

Zurich and Hess Oil employees also testified that the policy was administered in accordance with the understanding that the provision covered only FCCU contractors. Talarico stated that in administering claims under the policy Zurich and Hess Oil acted consistently with that understanding. Jackie Ward ("Ward"), a former litigation claims specialist with Zurich, assumed responsibility for handling claims under the policy in 1993 --well after the policy had become effective but before James was injured. Ward said that she was told at that time "[t]hat HOVIC or [Amerada] Hess would designate those contractors they wanted to insure, and that I was then to insure them under the policy with all of the terms of it." She further answered "no" to the question whether "the word `FCCU contractor' is a word of art used in the policy,"⁹ but she then went on to confirm that "[i]t's a term that John Talarico and I used to simplify our dealings with each other." Finally, it is undisputed that when James filed suit Zurich did undertake the defense of another company --a codefendant in James' action--that was an "FCCU contractor" that Zurich was contractually obligated to insure.

On the other side of the dispute as to original intent, some written extrinsic evidence submitted by James appeared to indicate that the Zurich policy as written provided coverage for all contractors and subcontractors who worked on the FCCU project. First, during negotiations for the policy Amerada Hess sent Zurich's proposal to Marsh and attached Exhibit II(a) as a summarization of the policy's terms. Exhibit II(a) listed substantially the same language that ultimately appeared in the Named Insured provision and went on with this skeletal description of that provision:

Policy names as requested Amerada Hess, HOVIC, Litwin and any other contractor or subcontractor.

Another abbreviated summary of the Zurich policy prepared by Wade stated that coverage extended to "Hess Oil Virgin Islands Corporation (HOVIC) and all Contractors and SubContractors for FCCU Project." Finally, though this added factor is at best a slim reed, the policy premium was calculated on the total cost of the FCCU Project...